Your family business needs a board

There should be a board at the top of any family business, it is the right direction to operate the business. If you want to have a business that is resilient and makes a positive impact on all stakeholders (e.g., employees, customers, vendors and society), you must ensure that your board is up and running. . This article presents some questions to consider as you develop best practices for your own board, such as who should be on the board, whether you need an independent director, and how often your board should meet. As you move your family business through these turbulent times, it’s important to think about the purpose and practices of your board. Because in the end, the ultimate fate of your business (eg, sale, merger, or dissolution) will be determined by the owners. not management.

Operating a family business is like piloting a ship. In fact, the word governing itself comes from the Greek word for “guide or guide”. Anyone who has a family business should consider the direction their family business is headed. It is determined by who is running the business and in which direction they are going. This is even more compelling as we face the rocky waters of the pandemic, rising inflation and geopolitical unrest. If you want to have a business that is resilient and makes a positive impact on all stakeholders (e.g., employees, customers, vendors and society), you must ensure that your board is up and running. . The board determines the direction of the company as a collective group, just as a captain steers a ship.

As you move your own family business forward in these turbulent times, here are some questions to consider, and tips to help you develop best practices for your board.

do you have a board

Unfortunately, when asked if their family business has a board, many owners answer “no.” The response is to indicate that either a board does not legally exist or that there is a board but it is not operating as such. Either way, “no” is not the best answer. In fact, most companies have a board at inception in the governing documents. If you review your articles of incorporation or bylaws, you may be surprised to learn that a board exists. It takes time to figure out if that is the case and if so, see who is listed as a board member. If, instead, a board is made but is inactive, you should ask why. Often, family business owners delegate control to the founder or other key family members who may or may not actually be on the board. This creates an unnecessary gap in corporate governance that will create strategic complications at some point in the future, if not today.

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What is the purpose of the board?

While there are a variety of formats for a board, depending on where the business was formed and/or where it operates, all boards serve the purpose of providing oversight, guidance, and representation of the interests of the owners. By definition, a board should operate at a strategic level and not get bogged down in day-to-day administration. A clear delineation is essential between the big questions the board must consider and the practical, strategic function of management. In a family business, the board must also ensure that the business operations owner aligns with the values ​​and goals of the family. This is because, in the end, the ultimate fate of a business (eg, sale, merger, or dissolution) is determined by the owners. not management.

Who Should Be on the Board of a Family Business?

Many family business boards consist of only family members. While this may provide some comfort to family members that their interests are being represented, especially when family members have different groups or branches, this is rarely appropriate. In fact, it may harm their interests – the opposite of what they want to achieve. This is especially true as industries are rapidly changing and when disruption is the name of the game for many business models. Board members must collectively have knowledge, skills and experience ranging from finance and law to industry trends and operational challenges. Issues such as audits, compliance and compensation cannot be ignored for the family dynamics that often drive board member selection. Also, a family business board must have one or more members — family or non-family members — who understand and support the values ​​and goals of the family owners.

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How Should a Family Business Board Work?

Some family owners have a board that meets every day or once a week. In these cases, the distinction between management and governance is being ignored. Just as a ship’s captain cannot rethink direction every minute (it is better to set direction and head for it without making too many adjustments), a board needs the appropriate space and time to focus on key strategic priorities. it occurs. A board that meets too often inadvertently takes up valuable management time and risks micro-management issues that are not the board’s responsibility. Quarterly meetings are often the norm, although in the start-up phase or times of crisis (such as a pandemic), more frequent meetings may be appropriate. The chairman of the board should lead the meeting in conjunction with structured timing for important presentations and decisions, while ensuring that all voices can be heard. The best board chairs understand how to use the time between meetings to get input on the agenda, air tough questions and issues, and identify hot topics that can spoil not only a meeting but the overall direction of the board. can do.

What is the role of an independent director?

While the term “independent director” may have a specific regulatory definition depending on the company, in the context of a family business it is often used to refer to a non-family director. The selection and inclusion of independent directors is still a “work in progress” for most family businesses. Some family owners choose to have a close friend or confidant, giving it the comfort that the director can be trusted, but this is often no better than appointing a family member who does not have the appropriate board qualifications. Is. In fact, it is best to create a job description for a board member focusing on the purpose and needs of the board before considering potential candidates. Furthermore, once an independent director joins the board, it is essential to create a system that respects their voice and input. The fate of the business and its stakeholders is in the hands of the Board; Independent directors should not be chosen for optics rather than for actual purposes.

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Why does this matter?

Most of the world’s businesses are owned by families. They play an important role in the local and global economy, the magnitude of which is surpassed only by government organizations. The board is at the helm of the business, and will go where the board leads the business. In addition, the nature of business and the duration of occupations is changing rapidly. In the future, businesses will have to be nimble and more open to existential fundamental changes in nature. A board should be willing and able to consider when, whether and how to change industries or arrange the sale of a business. In the end, a resilient business may not even be the highest goal. Family businesses are increasingly faced with questions that require more than just managerial expertise, but rather governance structures and processes that come from a higher calling – a resilient family, economy and society.